Meeting Minutes for Alternative Banking working group meeting February fifth , 2012.
Disclaimer: no idea expressed in meeting minutes have been approved by consensus by either the New York City General Assembly or the Alternative Banking Working group.
Greek Debt & Germany
1.Current situation in Germany & Greece – broad issues: since the EU, and the housing bubble, there were divides growing between central and peripheral economies and levels of govt debt; Greece used fancy products from Goldman to disguise debt; but then Greece couldn’t make interest payments; since that time there’s been a dance between coordinated EU/US efforts with IMF and central banks for short term rescue and longterm reform. The other side has been market pressure to cash the whole thing and cash out against
2.Monster treaty restricted how much debt as a percentage of GDP; that was repeatedly broken by everyone including Germany; all govts went into massive deficits in the wake of crisis; that pushed a manageable situation into crisis; Eurobanks are big bond holders of peripheral companies, so that’s how everyone’s interconnected – who owes what to who?
3.Rooted in German reunification in 1989 to refloat E.German economy – EU was brought into “free trade” – but tariffs as indirect taxation are always there; German in free trade zone to export into the other EU companies;
4.Who bought credit default swaps betting against Greece? Will bondholders take a hit?
5.Is this use of the European central bank the same as what the IMF and World Bank have done in the past on behalf of US corporate interests?
6.Who is going to benefit? The Greek politicians? The Greek people? The Germans? The US? What are the different incentives of each group?
7.Europe does not have a single backstop bank that’s capable of bailing out a state or a banking system. Should the Euro central bank (ECB) serve that function? Should the IMF serve that function?
8.There’s a battle going on right now… the ECB/the IMF/ The Greeks/ The Germans/
9.Money from sovereign states to banks; if they default that line of money gets cut off, who suffers? Greece is like the banking sector in the US? How are those losses distributed? The govt’s bailout went to the banks – why not to the homeowner’s who paid off their loan?
10.Private debts are transferred to the public through the governments and the bank; debt is transferred to the population.
11.Germany is printing deutsche marks (according to a former bush advisor http://seekingalpha.com/article/302290-germany-is-already-printing-money-deutsche-marks )
12.Debt is an important concept behind a lot of what’s going on – extending the analogy to the US. There were ideas and laws around the way debt was supposed to work, but didn’t.
13.Over the entrance of Moody’s was a sign : “Credit: Man’s Confidence in Man”
14.Redefining debt as whatever people in power want it to be…
15.Who’s really going to profit from an asset selloff? Before Greece was going to auction its assets they had a big meeting in London of potential buyers of the infrastructure, but no one wanted it. Driven by religion with how you deal with debtors
16.A tactic used in commercial war – who are the aggressors and who are the targets? Greece is a target; Germany is an aggressor. Deriding Greece’s infrastructure, is to devalue it, maybe, but then they’re not even buying it
17.Is this a manufactured crisis? (for Germany’s profit?) Or, is there a global financial system that was severely weakened by the first crisis, and now there are no clear winners in this next bubble. The assumption that the EU is an oppressive system should be a question
18.Is this a manufactured crisis?
19.If it was originally manufactured, it’s not now. The obvious winners are very much at risk – the Germans are very much at risk now. Their entire economy is at risk
20.Greeks don’t pay taxes; Greeks have thick social spending. So it wasn’t a manufactured crisis
21.Was Greece is great shape before they were part of the Euro zone?
22.The EU and the Euro were proposed at Mastricht; this is a crafted/contrived crisis – should the EU have existed? Difference between sovereign nations; All states relinquished their tarrifs to join EU, and Greeks were already not paying individual taxation…
23.Wary of national character explanations;
24.Question: Under Basel II bank regulations counts sovereign debt as no risk – so banks stocked up on sovereign debt
25.Austerity and self-determination of peripheral economies at risk; liquidity in credit may be at risk too
26.People being prisoners to bad ideology – Basal II looks pernicious, but originally came from risk modeling concepts from the private sector that were codified and formulated into public
27.Notion that Europe is locked into austerity, despite evidence that this never works. But it’s an article of religion that the debtors are bad and they have to be punished
28.The ECB has created the LTRO, providing banks with very big loans. This will forestall a near-term liquidity crisis.
29.Not so easy to take a banker’s perspective hat off…
30.The whole thing about tax evasion is this religious blame-the-debtor; is Greece ahead of the curve? Their simpler life…
31.Why so Eurocentric in the crisis issue? Where did it start? Euro central bank giving out money? Fed giving out money?
Top 10 Legislative Demands
1.To what extent should there be tax issues in here? (financial reform)
2.Monetary reforms are about the federal reserve
3.We can use taxes to control banks – transaction tax; tax on interest income; state taxes and federal taxes – if they engage in municipal investing they enjoy tax breaks; using tax as a form of discipline;
4.Social security caps at 108,000 – of you earn more than that you don’t pay more into social security; the amount you get out is also capped. Both the input and the output are capped at 108,000. This one is not related to finance. Is there a direct nexus to banking or finance? Is this an alternative banking issue.
5. 2 lists – one that is SPECIFIC to alternative banking; one that has things like taxes, etc.
6.Transaction tax or fee – fraction of a penny per trade tax ; this is about stock and bond trading, directly related to finance. Would put a big damper on short term speculative trading and a big revenue. (Would kill high frequency trading) Is HFT net good or net bad?
7.Carried interest tax – tax that applies to fund managers. Regular bankers should be furious because they pay 35% Private equity pays at 15%. It’s a loophole. Hedge fund managers paid 2% + 20% profits. Hedge fund managers claim that their salaries are capital gains. So they don’t pay income tax. The RICHEST GROUP OF AMERICANS HAS AVOIDED PAYING INCOME TAX
8.Carried income is exempt from NYC tax
9.Carried interest incentivizes one type of financial activity over another. Incentivizes hedging over commercial banking.
10.Since Glass-Steagall our banking system is a mixed system of investment and commercial banking
11.A tremendous difference between investment banking – speculative, underwrite and trade securities; prvate equity is private capital used to fund early or middle stage enterprises. Does not use leverage. That money is institutional. All private. But M&A structured as private equity.
12.Which of these activities carry a systemic risk to the entire banking system?
13.Legislation has been eroded to allow too big to fail.
14.Always those entities that are decent; but there are also those that are not following the rules; those are the ones we’re looking for.
15.Should we address capital gains and dividend taxes? Corporations don’t have a different rate between capital gains and earned income. Only individuals. (Statutory tax rate is 35%)
16.We want to encourage long term investment. We should have a graduated capital gains tax where if you’re investing longterm in a company/stakeholder – we should incentivize longterm investment. (Something like this already exists now)
17.Most investment is financed internally in non-financial corporations; buybacks have exceeded stock. Stock market has been draining capital, not raising it
18.15% rate on capital gains – numbers are unequivocal that the vast majority of that tax break goes to the top 1%. In the 99% they own them in 401ks. There’s NO advantage to the majority. ELIMINATE the advantage of capital gains. (But it’s an occupy question…) Tax capital gains at the regular rate
19.It’s hard to separate these issues. We can be sector-focused in our efforts, but these things are interconnected.
20.ISDA bank – interest and swap dealers association; the derivatives-trading bank; the big financial institutions determine who can enjoy the advantages of the tax system
21.Add capital gains to the list. This includes the dividend tax. (Get rid of capital gain/dividend tax advantage)
22. 401k – no tax on receipt of any income until distributed; when distributed its all regular income
23.Hedge funds invest pension funds; hedge funds are a flow-through entity – they don’t pay any taxes at all. Their owners pay taxes. Hedge funds are never a corporation; they’re always partnerships. It’s in the same class as a foundation, a college endowment, etc. But if they go public (Carlysle, etc.) then they will pay taxes
24.IRS.gov, capital gains WILL NOT effect small business owners; the portion of the benefit is SCRAPS to everyone else. Even more so the top 10% of the top 1%